The Empowered Committee of State Finance Ministers has endorsed in principle the levy of GST on imports and mandated a Joint Working Group to prepare a report in four weeks on the structural changes necessary to be adopted for this purpose.

The current thinking is to have a system where the basic Customs duty will continue to be levied by the Center on goods imported. The countervailing duty regime, however, is likely to be altered and broad-based to include both Central and State GSTs.

This may imply higher incidence of countervailing duty in the proposed GST system.The current countervailing duty regime provides a level playing field only with regard to the excise duty applicable on the same goods in the domestic market.

“The Empowered Committee endorsed some of the decisions relating to the preparation of GST,” Dr Asim Dasgupta, Chairman of the committee, told reporters here on Thursday.A discussion paper will be released within the end of the month.

A draft of the discussion paper has been circulated to the State governments so that interaction with the trade, industry and others concerned can start immediately, Dr Dasgupta said.

Also, the existing Joint Working Group, comprising officials of Central and State governments, has been mandated to prepare within four weeks a report on the Constitutional amendments necessary for GST, the changes required for levy of GST on imports, a draft legislation for Central GST, a draft for common legislation for State GST besides a draft for rules and procedures that may be required to administer the GST.

Four-week deadline

“The deadline for the working group will be four weeks. The report will then be considered by the empowered committee and then the Union Finance Minister for a final view,” Dr Dasgupta said. He also said that the Empowered Committee also discussed the revenue-neutral rates of States for the GST system, but no final view had been taken. Further discussions would be held in the coming days. The method of compensation in a neutral manner was also discussed.

“The Finance Ministers of Gujarat, Madhya Pradesh and Chhattisgarh, the Deputy Chief Minister of Bihar and the Home Minister of Karnataka emphasised that the preparation of IT infrastructure was absolutely essential for tracking inter-State transactions and tying up with State infrastructure,” Dr Dasgupta said.

He also said that the Centre would have to “share a major responsibility” in upgrading the infrastructural requirements for inter-State transactions. The States also drew the attention of the Committee on the need to compensate them for the CST revenue losses arising from GST implementation.

Indications are that the issue of compensation for CST revenue losses will come up at the meeting between the State Finance Ministers and the Union Finance Minister, Mr Pranab Mukherjee, slated for October 27.

Inter-State deals

For inter-State transactions, the Committee is now looking at a system of Integrated Goods and Services Tax (IGST). January 2010 has been set as the target date for completing the preparations for IT infrastructure.The Working Group report on service tax has more or less been accepted.